As greater scrutiny envelops the largest pharmacy benefit management companies, one thing is clear: They are not going to give up without a fight.
And in that existential battle, they just notched a major win. Last week, U.S. District Judge Brian Miller blocked an Arkansas law (Act 624) that would have banned PBMs from owning and operating pharmacies in the state.
Arkansas Governor Sarah Huckabee Sanders signed Act 624 into law in April, arguing that PBMs have increasingly bought pharmacies, allowing them to increase drug prices and put competitors out of business.
Shortly after, CVS Caremark, Express Scripts and PBM lobbying group Pharmaceutical Care Management Association filed separate lawsuits challenging the law.
Miller issued a preliminary injunction against the law, stating that it violates the Commerce Clause, which says that states cannot pass laws that unfairly hurt or discriminate against businesses from other states.
In response to the decision, Sanders said in a statement that “Arkansas was the first state to force big drug middlemen called PBMs to stop inflating drug prices and manipulating the market. The PBMs sued Arkansas and a judge let them get away with it. But we’ll appeal, win in higher court, and set a new standard for the country.”
While the state plans to appeal, at least one healthcare expert isn’t so sure that this law has a future.
“I could be wrong, but I don’t think, as it is drafted today, that there’s any possibility that it gets around the constitutional challenges that it faces,” said Chris Deacon, principal and founder of VerSan Consulting.
That said, Arkansas’ efforts still sent a powerful message.
“If anything, what I think this does is it very clearly sends a signal to Congress that the states are trying [and that] this is a problem,” Deacon stated. “They are trying to deal with it head on. ‘We cannot do this alone. … We need Congress to act because the holding is very clear: Congress has the authority to regulate interstate commerce. The states do not.’”
The judge’s decision
The judge granted the plaintiffs’ motions for a preliminary injunction for a few reasons. That includes his conclusion that they are likely to “prevail” on their Commerce Clause and TRICARE preemption claims.
The Commerce Clause gives Congress the power to regulate interstate commerce, while the negative implication of this authority — the dormant Commerce Clause — bars states from discriminating against interstate commerce.
“Act 624 appears to overtly discriminate against plaintiffs as out of state companies and the state has failed to show that it has no other means to advance its interests,” the judge stated. “This is true because section one of Act 624 specifically states that its purpose is to eliminate plaintiffs’ ‘business tactics that have driven locally-operated pharmacies out of business.’”
Moreover, the judge found that Act 624 conflicts with the federal TRICARE program, which is a healthcare program for active duty service members. TRICARE includes a preemption clause, meaning it overrides state laws that are inconsistent with TRICARE.
“Act 624 is explicitly preempted by TRICARE’s ‘health care delivery’ provision because Act 624 prohibits PBM-owned pharmacies from delivering healthcare to Arkansas patients. This prohibition is inconsistent with the TRICARE program that has existing contracts with some of the plaintiffs,” Miller said.
The judge also wrote that the plaintiffs would “suffer irreparable harm” from the Arkansas law, including great financial consequences.
CVS previously told MedCity News that it would be forced to close 23 community pharmacies in Arkansas and fire more than 500 local healthcare workers. Express Scripts doesn’t operate brick & mortar pharmacies in Arkansas, but it does have 25 non-resident pharmacy licenses in Arkansas that would be affected by the law.
The ruling was warmly greeted by plaintiffs whose response was framed in the context of how Arkansas’s law would harm patients with no mention of how it harmed their business prospects in the state.
David Whitrap, vice president of external affairs at CVS Health, said the company is “pleased with the Court’s decision to grant a preliminary injunction to stop the implementation of Act 624. We continue to be focused on serving people in Arkansas and are actively looking to work together with the state to reduce drug prices and ensure access to pharmacies.”
A representative for Express Scripts echoed this.
“We appreciate the Court acting to protect Arkansans’ access to their pharmacies,” said Andrea Nelson, chief legal officer of The Cigna Group, which owns Express Scripts. “Every day, our nurses, pharmacists and other dedicated team members provide care to Arkansas patients that can’t be easily replaced, and we will continue doing everything we can to protect Arkansas patients’ access to care and affordable medicines.”
What’s ahead?
It will be interesting to see how the battle between a Republican governor of a conservative state and the PBMs plays out if Sanders formally appeals.
Deacon of VerSan Consulting believes there isn’t any hope left for Arkansas’ PBM law, given this decision from the lower court was expected as it’s a “clear violation of the Commerce Clause.” She speculated that whoever reviewed the legality of the law likely knew that it would be challenged. However, passing the law brought great awareness to the issue of PBMs, she said.
“I think when the law was passed, it was by far, one of the most radical PBM state bills out there,” she said. “It was definitely the talk of the town. I think for the state of Arkansas, it really showed that they were ready to move on this and act against some of these big industries’ corporate interests, which made a big statement.”
Not all are swayed by this bleak prospect for the law.
The National Community Pharmacists Association (NCPA), meanwhile, believes Arkansas’ law is going to prevail.
“I do feel like it was the wrong decision because if you look at the way the law was written, you get away from all of the extraneous information that was brought into the record by the PBMs to sort of place a fog over the overall purpose and meaning of this law. I think reasonable minds will agree that this does not violate the Commerce Clause because there’s not a regulation of out-of-state entities, as the PBMs have claimed,” declared Matthew Seiler, general counsel at the NCPA, in an interview. He noted that it is actually a regulation of the corporate structure of PBMs, “regardless of where they are located.”
Whatever the legal future of the Arkansas law is, meaningful PBM reform needs to come from a national level instead of a patchwork of states, Deacon said. And currently, PBM reform is at the top of a lot of lawmakers’ minds. Numerous bills have been introduced targeting PBMs, including efforts to delink PBM compensation from list prices and banning spread pricing, in which PBMs charge payers more than they pay the pharmacy for a medication and then keep the difference.
Deacon is particularly in favor of the Patients Deserve Price Tags Act, which goes beyond PBM reform by requiring providers to publish the costs of services so Americans can compare prices. It ensures employer access to claims data and PBM information as well.
Seiler also called out the PBM Reform Act, which would ban spread pricing in Medicaid and delink PBM compensation from the cost of medications under Medicare Part D.
In December, a bill in Congress similar to the Arkansas law was also introduced. It’s called the Patients Before Monopolies Act and would ban the joint ownership of PBMs and pharmacies. However, this bill may be a “bridge too far” from what the federal government can achieve at this point, but it is indicative of where lawmakers want to go in the future, Deacon said.
In the absence of Congressional action, the states will likely continue to try and regulate PBMs. For example, California recently proposed a bill that would delink PBM compensation from the list price of a drug, which Paul Markovich, CEO of Ascendiun, noted in a recent episode of MedCity Debunked. Ascendiun is the nonprofit parent company of Blue Shield of California. He argued that the role of PBMs has absolutely nothing to do with the price of the drug.
“It’s not as if Amazon charges you for the cost of the contents of the box,” he said.
But Deacon hopes that with states stepping up, that Congress won’t slow its roll.
“What I would hate to see is Congress lose their energy and impetus to do something on a federal level [thinking] the states have this,” she said. “That would be a real lost opportunity.”
She added that states likely aren’t cracking down on PBMs because they simply want to, but because they’ve become a serious problem. Most states would probably be in favor of federal action against PBMs.
Photo: Rawf8, Getty Images
